output and costs

Output and costs - Output and Costs We finished studying consumer choices income prices(budget constraints preferences(indifference curves Short

This preview shows pages 1–3. Sign up to view the full content.

1 Output and Costs • We finished studying consumer choices – income, prices (budget constraints) – preferences (indifference curves) • Now we will turn to studying firm choices – first we study output technology - relationship between factors of production, also called inputs, and outputs • short run vs long run Short Run vs. Long Run • Short Run - when quantity of one factor of production (input) is fixed – typically we think of capital, like heavy machinery, as fixed in the short run – we can vary labor input in the short run by hiring and firing workers, or adjusting worker hours • Long Run - when quantities of all factors of productions can be varied – can adjust the quantities of machinery as well as labor and all other inputs First we will talk about the Short Run • We call the factors that are fixed in the short run the firm’s plant. – e.g. sewing machines for making clothes, blenders for making smoothies, bread machine for making bread… • Tables that show the relationship between the variable input and output – Vary units (worker-hours) of labor – Find total product, marginal product, average product Production in the Short Run Total product: total quantity produced at a given level of inputs. Marginal product: increase in total product given a one- unit increase in a given input. Average product: total product divided by the quantity of the input used. Example 15 5 75 5 17.5 7 70 4 21 23 63 3 20 25 40 2 15 15 15 1 0 0 Average Product (Loaves per Baker) Marginal Product (Loaves per Additional Baker) Total Product (Loaves of Bread) Labor (Bakers) Some Patterns • Marginal Product: – Initially increases: specialization – Eventually decreases: diminishing marginal returns – Law of diminishing marginal returns: • As a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually declines. • Average Product: – Initially increases – Eventually decreases

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 Product Curves • Output on y-axis • Variable input on x-axis • Shape of Total Product Curve – slope steepens at first, then flattens • Shape of Marginal Product Curve – marginal product curve is the slope of the total product curve – so it is increasing at first, then decreasing • Shape of Average Product Curve – increasing, and then decreasing Product Curves TP MP Labor Labor MP L AP L TP Average and Marginal Product Curves • Average product is largest when average product and marginal product are equal • Marginal product curve intersects average product at the point of maximum average product • when marginal is bigger than the average, it pulls average UP; when marginal is smaller than the average, it pulls average DOWN Average Age Example 35 30 36 40 35 50 30 40 25 30 -- 20 20 Average Up or Down? Average Age in Class New Student’s Age When the marginal student age is greater than the average
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/03/2008 for the course ECON ECON 1 taught by Professor Foster during the Winter '08 term at UCSD.

Page1 / 8

Output and costs - Output and Costs We finished studying consumer choices income prices(budget constraints preferences(indifference curves Short

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online